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Hotels for sale: 'get 'em while they're hot.'

Hotels for sale: 'Get 'em while they're hot'

"Hotels will remain a good investment until hotel rates increase at a double-digit number," said Stephen Brener, president, Stephen W. Brener Associates, Ltd. to a meeting of the Association of Real Estate Women (AREW) at the Grand Hyatt Hotel.

Once rates "go double", Brener said, everyone will start projecting about the fortunes to be made in hotels and people will start building.

Brener said the hotel industry is in a "serious time" because of the over-built market that has existed for the past three years. Before 1986 tax reform, Brener said, hotels presented the best "tax deal", thus came rapid production and a greater diversification of product. Many of those developers, however, have foreclosed and lenders have become owners. Today hotels are available for sale from institutions, banks, insurance companies and the Resolution Trust Corporation (RTC).

Oversupply, combined with the recession and the war in the Gulf, made for a national occupancy rate last year of 72 percent and a 3.69 annual growth in demand. In 1991 January, February, March were each well behind what they were last year.

"Historically, it (the hospitality industry) has seen about a 5 percent increase in demand and that goes into the 80's."

Brener said the current economic climate has brought changed travel patterns. Companies, for example, will send execs on trips early Monday and return them Thursday night rather than make it a Sunday to Friday trip, and during the war, travel into cities on the weekends was down.

There has been an increase, Brener said, in weekend discounts and packages to try and level occupancy. "If we don't get you on Saturday night, we get killed...Today we're wondering what we're going to have to give away next."

In Washington, D.C. the effects of the recent rioting there will be felt for the next three years. In San Francisco, he said, rates are still not back to what they were before the earthquake.

And New York is expected to get between 10 and 12 hotels in Midtown and Downtown including: the Sheraton Regis, the Pennisula, and the 57th Street Regent, expected to be one of the most expensive hotels.

New York, however, last year had 73.7 occupancy and Boston 73.4 percent, while no other city was even in the 70's.

Brener said there is very little financing available for hotels. There are many "mini-perms" coming due soon and there is no place to turn for refinancing. Anyone building today is building small, have ties in the area, and is getting financing from local banks based on a superior reputation. The other avenue for financing is off shore.

The industry has seen the entrance of the "hotel management companies" that take contracts for under one-year. There is a contract that Brener said, resembles a lease without the rent. The employees belong to the management company, which presents an annual plan that the property owner approves. Brener said, he thinks the United States will see a trend for small upscale hotels in the near future.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:May 15, 1991
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